What Breville Group Limited's (ASX:BRG) P/E Is Not Telling You

Breville Group Limited's (ASX:BRG) price-to-earnings (or "P/E") ratio of 32.3x might make it look like a strong sell right now compared to the market in Australia, where around half of the companies have P/E ratios below 20x and even P/E's below 12x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings growth that's superior to most other companies of late, Breville Group has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Breville Group

Want the full picture on analyst estimates for the company? Then our free report on Breville Group will help you uncover what's on the horizon.

How Is Breville Group's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Breville Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The latest three year period has also seen a 24% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 9.6% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 17% per year, which is noticeably more attractive.

In light of this, it's alarming that Breville Group's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Breville Group's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Breville Group's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Breville Group that you need to take into consideration.

Of course, you might also be able to find a better stock than Breville Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.